Oil rebounds, gold takes a bath

Oil bounces back as OPEC+ warns of sudden adjustments

It’s been another volatile session in the oil markets as OPEC+ met to decide on output targets for January. As per the previous agreement, the group had intended to increase production by 400,000 barrels per day each month but the coordinated SPR release and Omicron variant news threw a spanner in the works.

It was never likely that the group would retaliate against the SPR release and while many were expecting them to pare back, perhaps postpone, January’s increase in anticipation of an Omicron hit to demand, there’s clearly just not enough information out there at the moment to warrant a knee-jerk response. They bought themselves a couple of extra days but clearly little more is known than earlier this week.

So the decision to stick to planned increases was sensible, as was the caveat that they could make immediate adjustments before the next meeting if warranted. That doesn’t provide much certainty but it’s the flexibility the group needed to remain consistent as they await more data. And they had already planned for surges this winter which also allows them to be patient.

Oil prices fell after the initial decision but rallied again once the clarification was made on adjustments outside of the arranged meetings. With the White House stating that it welcomed the decision and it would still go ahead with the SPR release, crude prices could remain under pressure in the near term until more information on the variant is known.

Gold crumbles after failing to capitalise on rallies

Days of struggling to hold onto gains and generate any momentum above USD 1,800 is coming back to bite gold as it slips more than 1% on Thursday and tests the lows since mid-October. Higher yields, particularly at the short end, may be responsible for the slump in gold, as central banks prepare to withdraw stimulus and raise rates, despite the threat of Omicron. They don’t really have the flexibility they once did with inflation running so far above target. More lockdowns would be unbearable for central banks, which may be forced to compound the pain in order to contain rising price pressures.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

Latest posts by Craig Erlam (see all)